2021 (10) TMI 1460 - HC - Indian Laws

Arbitral tribunal can convert Section 9 petition to Section 17 application and grant interim relief without Statement of Claim

The Delhi HC dismissed an appeal against an arbitral tribunal's interim order under Section 17 of the Arbitration Act. The tribunal had treated a Section ... Jurisdiction of Arbitral Tribunal to convert a Section 9 petition into a Section 17 application - absence of a Statement of Claim affects the maintainability of a Section 17 application or not - Whether the finding of the learned Arbitral Tribunal, regarding prima facie liability, on the part of the appellant, to continue to pay the EMIs into the loan account of RBT, was, or was not, sustainable in law? HELD THAT:- This Court has already opined, in Dinesh Gupta v. Anand Gupta [2020 (9) TMI 1322 - DELHI HIGH COURT] and [2021 (9) TMI 1572 - DELHI HIGH COURT] that the considerations guiding exercise of appellate jurisdiction under Section 37(2)(b) are, fundamentally, not really different from those which govern exercise of jurisdiction under Section 34 of the 1996 Act. Objection to the Arbitral Tribunal having permitted OMP to be treated as an application under Section 17 - HELD THAT:- If the learned Arbitral Tribunal agreed to treat the Section 9 petition as an application under Section 17, it is not convinced that the decision suffers from any such error as may be regarded as fatal to the impugned order. It is also observed, in this context, that the appellant has not referred, in its appeal, to any provision of the 1996 Act which prohibits the learned Arbitral Tribunal from doing so; nor has any such provision come to my notice - The objection, of the appellant, to the learned Arbitral Tribunal having treated the Section 9 petition as an application under Section 17 is, therefore, rejected. Objection regarding maintainability of Section 17 application in absence of Statement of Claim - HELD THAT:- The arbitral protocol, under the 1996 Act is, however, somewhat peculiar in its dispensation. Section 9 itself envisages grant of interim protection, by a Court, before institution of arbitral proceedings and can be invoked, in an appropriate case, even before the notice of arbitration, under Section 21, is issued. The reason is that, while considering the prayer for interim protection under the 1996 Act, whether under Section 9 or under Section 17, apart from the troika of a prima facie case, balance of convenienceand irreparable loss, the Court, or Arbitral Tribunal, is also required to preserve the sanctity of the arbitral process, which is the very raison d'etre of the 1996 Act. All efforts to foster and promote the arbitral process, and prevent its interception or interdiction have, therefore, to be made. The Court under Section 9, or the Arbitral Tribunal under Section 17 is also, therefore, empowered to grant interim protection where any possibility of the arbitral proceedings being frustrated is found to exist, whether such frustration be before the arbitral process is initiated, during the arbitral process or even after the passing of the Award. If, therefore, before a Statement of Claim is filed, the situation that presents itself is such that interim protection has to be granted, to ensure the preservation of the arbitral process, the Court under Section 9, and the Arbitral Tribunal under Section 17, is empowered to grant such protection. Read conjointly, Sections 21 and 17, therefore, empower the Arbitral Tribunal to pass orders in terms of Section 17 at any point of time. The arbitral proceedings have commenced even before the Arbitral Tribunal is constituted, as the notice invoking arbitration would necessarily be prior in point of time. From its very inception, therefore, the Arbitral Tribunal is empowered to pass orders on any application filed, before it, under Section 17, by any of the parties. The requirement of filing of a statement of claim, prior to moving the Arbitral Tribunal under Section 17, can no longer be regarded as a mandatory requirement, after the amendment of Section 17 with effect from 23rd October, 2015. The objection, of the appellant, to the Arbitral Tribunal having condescended to entertain the Section 17 application of the Chadhas, even before a statement of claim was filed by it, is also, therefore, rejected. This Court has noted that, as a matter of routine, appeals are preferred against interlocutory orders passed by the Arbitral Tribunal, even if they do not result in irreparable prejudice to the appellant and are always capable of being modified when the final arbitral award is passed. Unlike the course of action, which it follows while dealing with petition under Section 9, the Court, when seized with an appeal against an interlocutory order of the learned Arbitral Tribunal under Section 17 of the Act, is constrained to return findings on merits, on the issues in controversy, as the Court is effectively sitting in judicial review over the findings of the learned Arbitral Tribunal. These findings have the potentiality of effecting, to some extent, the future course of the arbitral proceedings, as well as the final award that may come to be passed, even if the Court enters the usual cautionary caveat, that the findings are intended only to dispose of the appeal against the Section 17 order. Conclusion - i) It is established that Section 17 application could be maintained without a prior Statement of Claim, emphasizing the need to preserve the arbitral process and the Tribunal's power to grant interim measures during proceedings. ii) The appellant is directed to continue paying EMIs into RBT's loan account during the pendency of arbitral proceedings. Appeal dismissed. 1. ISSUES PRESENTED and CONSIDEREDThe core legal issues considered in this judgment include:Whether the Arbitral Tribunal had the jurisdiction to convert a Section 9 petition into a Section 17 application.Whether the absence of a Statement of Claim affects the maintainability of a Section 17 application.The interpretation of the MoU concerning the obligations of the appellant to pay EMIs into the loan account of RBT.The appellant's challenge to the Arbitral Tribunal's finding of urgency justifying interim measures.2. ISSUE-WISE DETAILED ANALYSISJurisdiction to Convert Section 9 Petition to Section 17 ApplicationThe appellant challenged the Arbitral Tribunal's decision to treat a Section 9 petition as a Section 17 application. The Court found that the conversion was requested by the Chadhas and was within the Tribunal's jurisdiction, given the holistic reading of the High Court's order appointing the Tribunal to adjudicate the disputes, including those raised in the Section 9 petition.Maintainability of Section 17 Application Without Statement of ClaimThe appellant argued that a Section 17 application is not maintainable without a Statement of Claim. The Court disagreed, noting that the arbitral process allows for interim measures to be granted to preserve the arbitral process, even before a Statement of Claim is filed. The Court cited the amended Section 17, which empowers the Tribunal to grant interim measures during arbitral proceedings, which commence upon notice of arbitration.Interpretation of the MoU and Obligations of the AppellantThe Tribunal's interpretation of the MoU, particularly Clause 4(b)(iii), was challenged. The Tribunal found that the appellant had not fulfilled his obligation to infuse an 'equivalent amount' into RBT's loan account, as required by the MoU, before the Chadhas and Guptas were obligated to infuse their respective amounts. The Court upheld this interpretation, noting that the MoU required the appellant to infuse funds personally, not merely through RBT's receivables.Finding of Urgency for Interim MeasuresThe appellant disputed the Tribunal's finding of urgency, arguing that no immediate threat of SARFAESI proceedings existed. The Court found that the Tribunal's decision was based on a reasonable apprehension of the loan account being declared an NPA, justifying interim measures to prevent such an eventuality.3. SIGNIFICANT HOLDINGSJurisdiction and Conversion of ApplicationsThe Court held that the Arbitral Tribunal had the jurisdiction to treat the Section 9 petition as a Section 17 application, as the High Court's order implicitly allowed adjudication of all disputes, including interim measures.Interim Measures Without Statement of ClaimThe Court established that a Section 17 application could be maintained without a prior Statement of Claim, emphasizing the need to preserve the arbitral process and the Tribunal's power to grant interim measures during proceedings.Interpretation of Contractual ObligationsThe Court upheld the Tribunal's interpretation of the MoU, requiring personal infusion of funds by the appellant into RBT's loan account before any obligation on the Chadhas and Guptas arose. The Tribunal's interpretation was deemed reasonable and consistent with the MoU's terms.Assessment of UrgencyThe Court affirmed the Tribunal's discretion in assessing urgency for interim measures, noting that the Tribunal's finding was supported by factual material and was not arbitrary or perverse.In conclusion, the Court dismissed the appeal, affirming the Arbitral Tribunal's order directing the appellant to continue paying EMIs into RBT's loan account during the pendency of arbitral proceedings. The Court emphasized the limited scope of interference with the Tribunal's discretionary orders unless they are arbitrary or capricious.